BILL NUMBER: AB 244	CHAPTERED  09/18/00

	CHAPTER   468
	FILED WITH SECRETARY OF STATE   SEPTEMBER 18, 2000
	APPROVED BY GOVERNOR   SEPTEMBER 16, 2000
	PASSED THE ASSEMBLY   AUGUST 30, 2000
	PASSED THE SENATE   AUGUST 28, 2000
	AMENDED IN SENATE   AUGUST 21, 2000
	AMENDED IN SENATE   AUGUST 18, 2000
	AMENDED IN SENATE   AUGUST 7, 2000
	AMENDED IN SENATE   JULY 6, 2000
	AMENDED IN SENATE   JUNE 7, 2000
	AMENDED IN ASSEMBLY   JANUARY 11, 2000
	AMENDED IN ASSEMBLY   MARCH 17, 1999

INTRODUCED BY   Assembly Member Ackerman

                        FEBRUARY 1, 1999

   An act to add Section 25118 to the Corporations Code, relating to
usury.



	LEGISLATIVE COUNSEL'S DIGEST


   AB 244, Ackerman.  Corporations:  evidences of indebtedness.
   The California Constitution prohibits usury, which is the loan or
forbearance of any money, goods, or things at a rate of interest in
excess of specified ceilings, but exempts certain transactions and
lenders from these provisions, and allows the Legislature to exempt
additional classes of persons by statute.  Existing statutory law,
the Corporate Securities Act of 1968, provides that certain evidences
of indebtedness, and their purchasers or holders, are exempt from
state usury laws if the evidence of indebtedness is issued in
compliance with specific provisions.  Existing statutory law also
provides that the usury exemption is applicable to an evidence of
indebtedness issued in accordance with these provisions regardless of
whether subsequent to its issuance the evidence of indebtedness is
determined by a court of competent jurisdiction to be a security.
   This bill would provide that certain evidences of indebtedness in
an amount of at least $300,000 at the time of issuance, and the
purchasers or holders thereof, shall be exempt from the usury
provisions of the California Constitution under certain
circumstances, as specified.  This bill would state that these
exemptions apply regardless of whether the evidence of indebtedness
or guaranty is determined by a court of competent jurisdiction not to
be a "security," but would clarify that these exemptions do not
extend to evidences of indebtedness issued or guaranteed by an
individual, a revocable trust, or a partnership with general
partners, as specified.  The bill would provide that it does not
exempt any person from the California Finance Lenders Law.
   This bill would state legislative intent that the standards
contained in these provisions are approved with respect to commercial
loans only and do not reflect any judgment by the Legislature
regarding loans for personal, family, or household purposes and that
the exemption contained therein shall not affect the application of
existing licensing requirements, laws regarding unfair, unlawful, or
deceptive acts or practices, or its availability to a successor in
interest to the originating lender.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 25118 is added to the Corporations Code, to
read:
   25118.  (a) An evidence of indebtedness issued by an entity or
guaranteed by an entity that is an affiliate (as defined in Section
150) of the borrower that, on the day the evidence of indebtedness
issued or guaranty is first issued or entered into, has total assets
of at least two million dollars ($2,000,000) according to its then
most recent financial statements, and the purchasers or holders
thereof, shall be exempt from the usury provisions of the
Constitution.  The financial statements referred to in the preceding
sentence shall be:
   (1) As of a date not more than 90 days prior to the date the
evidence of indebtedness or guaranty is first issued or entered into.

   (2) Prepared:
   (A) In accordance with generally accepted accounting principles
and, if the entity has consolidated subsidiaries, on a consolidated
basis.
   (B) In accordance with the rules and requirements of the
Securities and Exchange Commission, whether or not required by law to
be prepared in accordance with those rules and requirements.
   (b) Any one or more evidences of indebtedness, and the purchasers
or holders thereof, shall be exempt from the usury provisions of the
Constitution if either of the following applies:
   (1) The evidences of indebtedness aggregate at the time of
issuance at least three hundred thousand dollars ($300,000) in
original face amount, or, if the evidences of indebtedness are
purchased with original issue discount, they are purchased for an
aggregate purchase price at the time of issuance of at least three
hundred thousand dollars ($300,000).
   (2) The evidences of indebtedness are issued pursuant to a bona
fide written commitment for the lending to the issuer of at least
three hundred thousand dollars ($300,000), or the provision of a line
of credit to the issuer in a principal amount of at least three
hundred thousand dollars ($300,000).  The exemption provided by this
paragraph shall not be affected by a subsequent event of default or
other event not in the lender's control that has relieved or may
relieve the lender from its commitment.
   (c) Any evidence of indebtedness described in subdivisions (a) or
(b), and the purchasers or holders thereof, shall be entitled to the
benefits of the usury exemption contained in this section regardless
of whether, at any time after the evidence of indebtedness or
guaranty upon which the exemption is based is first issued or entered
into, the evidence of indebtedness or guaranty is determined by a
court of competent jurisdiction not to be a "security."
   (d) This section creates and authorizes a class of transactions
and persons pursuant to Section 1 of Article XV of the California
Constitution.
   (e) This section shall not apply to:
   (1) Any evidence of indebtedness issued or guaranteed (if the
guaranty is part of the consideration for the indebtedness) by an
individual, a revocable trust having one or more individuals as
trustors, or a partnership in which, at the time of issuance, one or
more individuals are general partners.
   (2) Any transaction subject to the limitation on permissible rates
of interest set forth in paragraph (1) of the first sentence of
Section 1 of Article XV of the California Constitution.
   (f) The exemptions created by this section shall only be available
in a transaction which meets either of the following criteria:
   (1) The lender and either the issuer of the indebtedness or the
guarantor, as the case may be, or any of their respective officers,
directors, or controlling persons, or, if any party is a limited
liability company, the managers as appointed or elected by the
members, have a preexisting personal or business relationship.
   (2) The lender and the issuer, or the lender and the guarantor, by
reason of their own business and financial experience or that of
their professional advisers, could reasonably be assumed to have the
capacity to protect their own interests in connection with the
transaction.
   (g) For purposes of this section, "preexisting personal or
business relationship" and "capacity to protect their own interests
in connection with the transaction" as used in subdivision (f) shall
have the same meaning as, and be determined according to the same
standards as, specified in paragraph (2) of subdivision (f) of
Section 25102 and its implementing regulations provided that, solely
with respect to this section, a lender or purchaser who is
represented by counsel may designate that person as its professional
adviser whether or not that person is compensated by the issuer or
guarantor, as long as that person has a bona fide attorney-client
relationship with the lender or purchaser.
   (h) This section shall not exempt any person from the application
of the California Finance Lenders Law (Division 9 (commencing with
Section 22000) of the Financial Code).
  SEC. 2.  It is the intent of the Legislature that the standards
contained in Section 1 of this act are approved with respect to
commercial loans only.  They do not reflect any judgment by the
Legislature regarding loans for personal, family, or household
purposes.  No inference should be drawn from those standards as to
the appropriate treatment of any loans other than loans for
commercial purposes that qualify for the exemption provided therein.

   It is also the intent of the Legislature that the exemption
contained in Section 1 of this act shall not affect the application
of any other provision of law that (1) requires any person in
connection with a transaction described in Section 1 to comply with
applicable licensing requirements, (2) protects parties to a
transaction described in Section 1 from unfair, unlawful, or
deceptive acts or practices, or (3) affects the availability of the
exemption provided by Section 1 to a successor in interest of the
originating lender of a loan described therein.
